The Australian government has listed its option its intention to remove the double application of the Goods and Services Tax (GST) to the use of digital currencies.
Under current rules stated by the Australian Taxation Office, Bitcoin is regarded as intangible property, and therefore has GST applied when exchanging fiat currency for digital currency, and then again when the digital currency is used to purchase something.
In its GST Treatment of Digital Currency consultation paper released on Tuesday, Treasury stated three options for changing how the GST impacts digital currencies: Input tax treatment similar to the UK and Europe where Bitcoin is regarded as akin to share trading, loans, or exchanges of foreign currency; changing the definition of money in the GST Act to include Bitcoin; or explicitly stating that Bitcoin is GST-free in the same manner that food is GST-free.
However, before an option is settled upon, the government needs to work out a Goldilocks definition of digital currency that is suitable for it -- whether it be principles-based, or an explicit list of currencies that meet the definition.
"It is not the government's intention to change the GST treatment for all internet-based currency-like products, due to the potential for unintended outcomes. This creates a need to differentiate between some or all of the more than 600 digital currencies that are similar to Bitcoin, as well as distinguish these currencies from the multitude of other internet-based currency-like products that are not intended to be in scope, due to their diverse characteristics and intended uses," the paper said.
The government does not intend to allow for in-game currencies, loyalty scheme points, frequent flyer points, or digital vouchers to fall under the digital currency definition.
Once a definition is found, and the government settles on an GST treatment option it is happy with, unanimous agreement would be needed from all Australian state and territory governments as it would constitute a change to the GST base.
In August, the Australian Senate Economics References Committee called for changes to the GST Act to amend the definition of money, and said the GST treatment of digital currencies was the most pressing concern for Australian businesses that are using currencies such as Bitcoin. According to the report, Bitcoin startup CoinJar said the ATO ruling had made it uncompetitive against non-Australian rivals.
Tuesday's consultation paper follows on from the government's Backing Australian FinTech report in March.
The government said it did not intend to make any changes to income tax treatment of digital currencies, and submissions in response to the paper close on June 3.
Other announcements made in today's 2016-17 Federal Budget concerning financial technology include AU$200,000 to be spent promoting Australia as a "fintech destination" for "innovators", and ASIC beginning consultation on a "regulatory sandbox" for fintech businesses to test early-stage ideas.
"The government is looking to establish a regulatory sandbox where fintech startups and businesses can test ideas for up to six months with a limited number of retail clients subject to investment thresholds and restrictions on the types of services eligible for testing," Australian Treasurer Scott Morrison said in a statement.
Morrison also said Data61 will undertake a review of opportunities for blockchain adoption in government and the private sector, as well as testing any potential applications.
"The benefits of this technology could be profound -- extending right across our economy," Morrison said. "We are looking to position Australia as a leading global player in this exciting new area."
The Budget papers also said the government would conduct a cost-benefit study into the government adopting electronic invoicing, the cost of which would be met by existing funding allocated to the ATO.